TRENTON, N.J. — Indian generic drugmaker Ranbaxy Laboratories Ltd. and GlaxoSmithKline Plc. have settled their long-running patent dispute over the British pharmaceutical giant's billion-dollar Valtrex anti-herpes drug, a move that guarantees Ranbaxy the right to launch a copycat version of the drug in a little over two years.

The two companies reached an agreement July 24 that resulted in the dismissal of a lawsuit Glaxo filed against Ranbaxy in 2003 claiming that the Gurgaon-based drugmaker infringed on its U.S. patent, which covers the Valacyclovir hydrochloride herpes treatment, as well as a counter-suit that Ranbaxy filed against Glaxo challenging the validity of the patent.

The case was heard in the U.S. District Court in Trenton, N.J., because Ranbaxy's U.S. subsidiary, Ranbaxy Pharmaceuticals Inc., is headquartered in Princeton.

The deal permits Ranbaxy to begin marketing a generic version of Valtrex in the United States in late 2009. As the first generic company to file for approval to sell the drug, Ranbaxy received 180 days of sales exclusivity. The company also obtained a license for Glaxo's two other U.S. patents, both of which are listed by the U.S. Food & Drug Administration as applicable to Valacyclovir.

Gaytri Kachroo, an attorney with the Boston law firm of Burns & Levinson LLP and a specialist in intellectual property issues, said both companies stand to benefit from the settlement.

"It definitely benefits Ranbaxy, and in the long run this settlement will benefit their [collaborative efforts]," she said. "It's good for Ranbaxy because they get six months of exclusivity to market their product, and it benefits Glaxo because they want to stay on Ranbaxy's good side."

District Court Judge Mary Little Cooper signed the order that approved the settlement. Ranbaxy managing director Malvinder Mohan Singh, who had spoken previously of the company's desire to launch one new drug with exclusivity per year, hailed the deal as proof that Ranbaxy's "first-to-file strategy" is paying off.

"In litigation, there is always uncertainty and a settlement gives certainty to both sides," Singh said in a July 26 statement. "Ranbaxy will continue to pursue a strategy to effectively leverage and monetize its pipeline of first-to-file opportunities. The company believes that it has [first-to-file] status on approximately 20 filings, representing a market size of $26 billion valued at innovator prices."

Ranbaxy shares surged 9.5 percent on the Bombay Stock Exchange following Singh's comments.

Valacyclovir is an antiviral drug used to treat genital herpes, cold sores and shingles. It is a prodrug — a pharmacological substance that is administered in an inactive (or significantly less active) form and metabolized within the body into an active form — and is marketed by Glaxo under the trade name Valtrex or Zelitrex. According to Glaxo, Valtrex generated sales of approximately $1.3 billion in 2006.

The U.S. Patent and Trademark Office issued a patent on the drug to Burroughs Wellcome Co., the pharmaceutical company that developed it and a predecessor to GlaxoSmithKline, on Sept. 18, 1990. In 1995, Glaxo Inc. changed its name to Glaxo Wellcome Inc. and merged with Burroughs Wellcome Inc., forming SmithKline Beecham Corp. The company does business as GlaxoSmithKline Plc. Since that time, Glaxo has owned the Valtrex patent.

But in late March 2003, Ranbaxy applied for FDA approval to manufacture, market and distribute generic 500-milligram and 1-gram tablets of valacyclovir; Glaxo filed suit against Ranbaxy in May of that year, alleging the company was infringing on its patent. Ranbaxy responded to Glaxo's claim by counter-suing the company one month later on the grounds that Glaxo's patent was invalid. The case lingered in the U.S. District Court in Trenton for nearly 4 years until last February, when the FDA gave Ranbaxy final approval to manufacture and market a generic version of Valtrex in the United States beginning in 2009.

"When Ranbaxy received FDA approval to sell a generic version of Valtrex, Glaxo, of course, wanted to make sure that it still had the patent on the drug until the end of 2009," Kachroo said. "Glaxo was very afraid that Ranbaxy would bring their product to the market before 2009 - they said (to Ranbaxy), 'No, we just want to set some boundaries here. We want to make it very clear when you can do this.'

"Glaxo, like a lot of brand names - Pfizer is another one — are going to want to impede the generics for as long as possible," Kachroo said. "If I come out with a new HIV drug tomorrow, all of a sudden I have a monopoly on it for the next 20 years. If someone else reengineers my product, they'll want to come out with a generic as soon as possible."

The July settlement is part of Ranbaxy's strategy of aggressively using litigation in order to penetrate the international pharmaceutical industry. The company has repeatedly challenged the validity of patents on other drugs in courts around the world. Ranbaxy targeted Pfizer Inc.'s cholesterol-lowering drug Lipitor, gaining partial victories in the British and Australian courts but losing another challenge in April, when the U.S. Supreme Court declined to hear Ranbaxy's appeal of an appeals court ruling that upheld Pfizer's U.S. patent on Lipitor.

Despite their contentious relationship — Glaxo and Ranbaxy have had patent disputes over other drugs in the past — the two companies have collaborated in other areas. Earlier this year, Glaxo authorized Ranbaxy to continue research and development of a respiratory drug that was initiated by a collaboration pact the two companies had signed previously.

The pact assured Ranbaxy that Glaxo would pay it up to $100 million in milestone payments if any jointly developed drugs make it to the market. Ranbaxy also retains the right to co-commercialize the drugs in India and earn royalties on foreign sales.